RegulationAccounting StandardsColella issues fair value rocket to politicians

Colella issues fair value rocket to politicians

Scottish institute's chief exec sends strongly-worded letter to politicians in the UK and EU mandarins warning them against dropping of fair value

Anton Collella has joined the ranks of dissenters firmly against a suspension
of fair value accounting.

The ICAS chief executive said that he had written to the Prime Minister, the
Business Secretary Peter Mandelson, David Cameron and the EU Commissioner for
the Internal Market and Services to warn that any suspension of the rules would
skew the landscape in the financial markets.

‘[ICAS is] extremely concerned by the recent proposals in the US to permit
the suspension of the fair value measurement rules for financial instruments,
and the calls suggesting that similar steps should be taken by the European
Commission or the IASB,’ said Colella. ‘We strongly believe that this suspension
would not be in the public interest, and would be detrimental to the capital
markets.’

Colella said ICAS recognised that the current illiquidity and volatility in
the markets made establishing fair values for financial instruments more
difficult, but fair value measurement still provided the ‘most relevant
information to investors.

‘To use any other measurement basis would simply mask the real, current
values of financial instruments, and past experience has shown that the absence
of this information has in fact contributed to prolonged market turmoil.

A total suspension of fair value has been shelved
for
the time being in the EU
, but a reclassification of certain assets has been
called for. The full suspension could still come back onto the table if the US
decides to drop the GAAP equivalent of the accounting rules.

Colella added: ‘While fair value accounting has been blamed by many as one of
the causes of the current financial crisis, we would argue that accounting is
merely a language which reports the underlying economics in a transparent and
neutral way.’

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